Don't be afraid to negotiate

These people get a sick feeling knowing that the caller is likely a creditor trying to collect on an overdue bill. I want to discuss what debtors should do when they get that call.

One thing you shouldn't do is ignore the call. Even if you don't have the money to pay the debt, let the collection agency or attorney know your circumstances, said Bob Markoff, president of the National Association of Retail Collection Attorneys.

"We might be able to talk to you and find a way to set up something that fits your budget," Markoff said. "The consumer has the right to pay whatever they can pay."

If you do answer, don't be pressured to pay an amount you truly can't afford.

There's no point in promising money that you won't have, which will only further frustrate the debt collector and stress you out.

"Don't allow yourself to be bullied by anyone asking for your money," Markoff said. "Do what you can do, and if that is not acceptable, it's unfortunate for that credit grantor."

Having said that, Markoff warns that you shouldn't try to duck the debt by claiming you can't afford to pay anything when, with a little belt-tightening, you actually could. Debt collectors aren't fools. They have access to your credit files. They can look and see if you've bought a home or car, have cable service or have made recent purchases on credit.

In many cases, you can negotiate to settle the debt for less than you owe, Markoff said.

"If you have cash in hand, you are more likely to obtain a reasonable settlement than a promise to pay something in the future," Markoff said.

"You have already broken a promise to pay in the future, so cash today really talks."

Let's say you have an old debt that has ballooned to $5,000 with fees, interest, etc. Offering to pay $10 a month probably isn't going to fly. But if you offer $1,500 in a lump sum, you have a better chance for a settlement.

However, once you do negotiate a settlement, be sure to get all the details in writing before you send a penny to the collection agency or attorney.

After you've settled the debt, keep a record of the payoff and all your correspondence. My advice: Hang on to the paperwork forever. Often old debts get sold and then resold, and it's possible the information about your payoff may not get passed along to the new collection agency or attorney. Years later, you might start getting telephone calls about a debt you have long since settled.

There generally is a statute of limitations in which a debt collector can sue to collect on an old debt. The statutory time limit on certain consumer debt varies by state. Keep this in mind, however: Even if debt collectors can't sue you in court for the debt, they still have the right to collect what is owed.